Recent figures show that more than 60% of adults in the UK die without a will - a happy thought! However, evidence from IPSE Affiliate Contractor Financials suggests that an even greater proportion of the freelancer population have no up-to-date will in place.
The old adage that "nothing in life is certain except death and taxes" applies doubly because, whilst most freelancers keep day-to-day tax affairs in order, the lack of an up-to-date will can lead to the biggest tax bill of all hitting your estate.
Inheritance Tax (IHT) is charged at 40% on assets over £325k. This punitive rate is still referred to as a voluntary tax however because by even using the very basic of estate planning measures, IHT can often be avoided.
Where there’s a will there’s a way
There is a common misconception that you only need a will if you are wealthy. However, with more people receiving legacies from previous generations, IHT is now catching a far greater proportion of the population than used to be the case.
Although it's never pleasant to think about our own mortality, dying without a will (dying intestate) could have serious financial as well as emotional implications for your loved ones and will make it much more difficult for them to deal with your estate after you have gone.
A will is often regarded simply as the vehicle through which your assets are distributed in the event of your death, but irrespective of any tax planning that could be undertaken, it has a far more important role to play.
If you are single, having a will in place will ensure that your belongings and wealth go where you want them to go. If you are married, without a will, don’t assume that your “other half” will get everything. Other family members (sisters, brothers, parents, children) may have a right to your estate as well. If you are in an unmarried or civil partnership it becomes even more important to have a will as your partner will not have an immediate claim on your assets if you die and the money could go to more immediate family instead, leaving them both emotionally and financially hurt.
As parents of children under 18 years of age, a will has a vital role to play. On average, a child in the UK loses a parent every 30 seconds. By making provision for your child/children in your will, you can ensure that they will be properly cared for in the event of your death as you will state who you wish to appoint as guardian/s to look after them. Without appointing someone, it will be up to the courts to decide who your children will live with and could even result in them being taken into care. In your will you also safeguard the financial needs of your children and their guardians by creating trust funds for this purpose.
Simply put, by making a will, you decide who should receive your assets and make sure that they go to the people you want them to go to. Die intestate (without a will) and the state will decided who gets what.
How to write a will
Although it is possible to write your own will, and there are plenty of DIY kits available, it must be remembered that a poorly drafted and incorrectly witnessed will can cause very serious problems. In fact, solicitors make more money sorting out issues from poorly drafted homemade wills than they do from drafting them properly in the first place.
There are various legal formalities that need to be followed to make sure your will is valid. By using a solicitor or a professional will writer they can advise you on the more complicated issues, including Inheritance Tax. Your solicitor or professional will writer will also be able to advise you on where and how to keep your will safe.
It is also important to note that if you are making a will in Scotland, Scottish inheritance law differs from English law. The Scottish ‘Rights of succession’ guide explains what happens if someone dies intestate in Scotland and can be found here.
Points to consider when deciding what to put in your will
- Think about all of your property, possessions and money
- Who would you like to benefit from your will (i.e. leave your assets to)
- Do you want to establish a trust?
- Who would you like to appoint as legal guardian for your children if they are under 18 years of age
- Are there any conditions you want to attach to any bequests
- Who you want as executor of your will. i.e. who is going to sort out the estate and carry out your wishes
- Do you want to leave a bequest to a charity?
- Do you have any particular wishes for your funeral?
- Do you want to be buried or cremated?
Most wills are made up of cash legacies, bequests and the residue. Cash legacies and possessions (including property) may be left to relatives, friends or charities – whoever you wish. The residue is what is left after all debts, tax and fees have been paid and may also be left to whoever you wish.
If you share ownership of property with a spouse or partner, your worth will be half its market value less your share of the mortgage. If the property is held in a joint tenancy then your half of the property will automatically pass to the surviving joint tenant. If however it is held in a tenancy in common, you can leave your share of the property to whoever you wish and they will become a tenant in common with the other owner.
If you are leaving money and/or property to children under 18 year of age it will be held in trust for them until they are 18 (or until they marry, if earlier). If you do not specify how the trust is to be managed, the executors will deal with the fund in accordance with “trustee laws”.
In order for a will to be legally valid:
- You must be 18 years or older
- It must be signed by both the witnesses after the person making the will has signed, an in the presence of the person making the will.
- It must be signed by the person making the will in the presence of two witnesses who are 18 years or older, not blind, capable of understanding what they are doing and are not beneficiaries of the will
- It must be made in writing and without pressure (i.e. voluntarily)
- No one must leave the room before the signing is complete
A will should be reviewed every five years as well as after any major change in your life like marriage, having a child, moving house or separation and divorce. These changes can be made by an addition or amendment to the will (a codicil) or by making a new will.
Having a will you can ensure that you are not leaving your grieving family with a host of problems and ensure that your investments, property and possessions go to the people you intend to benefit from a life’s hard work.
This information has kindly been provided by Tony Harris of IPSE Affiliates, Contractor Financials. To find out more about the advice and services they provice, please visit www.contractorfinancials.com or contact them by email at email@example.com or call 0845 062 8888Managing your money, Legal Advice